HLF calls for improvement to insurers’ prudential framework

Written by Adam Cadle

10/06/2020

The long-term nature of insurance business should be better reflected in the prudential framework, a report by the High Level Forum (HLF) on capital markets union has said.

The HLF, set up by the EC, said improvements to capital calibrations and the risk margin should increase capacity among insurers to invest in capital markets, particularly in equity, it argued. The HLF said this can be done by carrying out a “targeted review of Solvency II”.

Some members of the HLF said that EIOPA should have direct supervisory powers over large insurers and re-insurers. They stress the systemic nature and wide cross-border reach of large insurers in the EU, as well as the fact that the current insurance framework leaves room for significant supervisory interpretation and discretion. Others in the group, however, take the view that insurance markets are still too fragmented and local by nature, and therefore would not benefit from EU-level supervision.

The HLF recommends that the Commission strengthens ESMA and EIOPAs’ mandate to enhance EU supervisory convergence, including by reforming their governance and strengthening their powers and toolkits as well as by entrusting them with wider powers in crisis management and ensuring that they are granted adequate resources.

“To that effect the Commission should review the relevant sector-specific legislation as well as the founding regulations of ESMA and EIOPA,” it said.

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